The shift of the foreign direct investments paradigm impacted by the Fourth Industrial Revolution

Abstract

Objective: The purpose of the article is to examine the impact of ground-breaking inventions collectively called the Fourth Industrial Revolution (4IR) or Industry 4.0 on foreign direct investments (FDIs). In particular, the impact of the inventions on offshoring and reshoring (backshoring, nearshoring, insourcing) was analysed in the context of other factors and their potential future course.

Research Design & Methods: The article is theoretical and empirical in nature and based on theoretical literature on the subject, secondary sources containing the results of empirical research, and desk research. Predictive analysis and logical reasoning methods played therefore a very important role, since the studied phenomena are in the process of evolution. The structure of the article consists of findings on the origins and the definitions of offshoring and reshoring and their theoretical foundations, an analysis of the motives, barriers and course of these processes follows, and the presentation of the research results and the final conclusions.

Findings: The implementation of 4IR inventions has the potential to fundamentally change the geography of FDIs and their importance in the world. It is likely to decrease the significance of labour costs as a factor of production location while increasing the role of human capital and technology. As a result, reshoring phenomena will intensify, and many global value chains will be liquidated or shortened. The ambivalent impact of 4IR on the geography of production will be probable, while the trend towards reshoring and spatial dispersion of the production of complete products in the long term may appear to be stronger.

Implications & Recommendations: To a significant degree, Industry 4.0 will probably change the criteria for the implementation of FDIs, their size, and the directions of capital flows. The consequences of this will vary depending on the type of industry and the production carried out within. In particular, the effects will differ when divided between highly developed and developing countries. If the former benefit from the change in business models and strengthen their competitive advantages, the latter may suffer significant losses related to the increase of unemployment and the collapse of their industrialization strategy based on the inflow of FDIs. Therefore, actions by governments and international organizations are necessary to prevent this ‘dark’ scenario from becoming a reality.

Contribution & Value Added: The article presents the theoretical foundations of offshoring and reshoring as well as the analysis and synthesis of their motives and barriers. Their course and recent determinants were characterized. The assessment of the impact of 4IR inventions on offshoring and reshoring and the identification of factors that will affect these two aspects of FDIs positively and negatively in the short, medium, and long term in the future have the greatest importance for the value of the study. Moreover, the study found that the reverse flow of FDIs implies the need to formulate their new paradigm. The former paradigm characterised them in a limited way as a unilateral flow of capital from the country of origin to the host country. The one proposed in the article takes into account also the return movement of capital as an immanent element of FDIs of increasing importance.

Keywords

Industrial Revolution 4.0, offshoring, reshoring, foreign direct investment

Author Biography

Jan Rymarczyk

Full professor, currently working at the WSB University in Poznań (Poland). His research interests include international business and international trade.

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